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Indian Rupee hits record low of 59.94 against dollar

The rupee slumped to a record low on Thursday, while stocks and bonds were hit, after the Federal Reserve signalled a tapering of its monetary stimulus, highlighting the country’s dependence on foreign capital inflows to fund its current account deficit.

The rupee fell to a record low of 59.9350 to the dollar, breaching past its all-time low of 58.98 on June 11. The rupee was trading at 59.68 as of 11.42 a.m., down from its 58.71/72 close on Wednesday.

Finance Minister P. Chidambaram held a meeting with top officials about the fall of the rupee, while his economic advisor Raghuram Rajan said the government is not short of options to tackle the fall of the rupee and will take actions as necessary.

Mr Rajan also said the central bank would take action to support the rupee as appropriate.

The Reserve Bank likely sold dollars via state-run banks after the rupee slid to a record low, Reuters said quoting several dealers.

The intervention was spotted when the rupee hit 59.90 to the dollar or below, traders told Reuters.

The BSE Sensex and the Nifty fell more than 2 per cent each. Bond yields jumped, with the benchmark 7.16 per cent 2023 bond yield rising 10 basis points to 7.36 per cent from its previous close.

Traders are unnerved after U.S. Federal Reserve Chairman Ben Bernanke confirmed that the Fed would begin reducing its stimulus spending later this year. The Fed’s tapering of its bond purchases could trigger an outflow from emerging markets including India.

Outflows from equity markets have added to concerns about the funding of the current account deficit. Foreign fund selling in Indian equities have picked up pace to add to the huge sell-off in debt markets.

Overseas investors have sold $485 million of Indian shares in five sessions, adding to outflows of $4.7 billion in 18 consecutive sessions of debt selling, as per capital market regulator data.

Inflows are crucial to bridge India’s current account gap and will be needed to fund an estimated $90 billion gap in its balance of payments in the current financial year.